Old Mutual profits keep growing ahead of UK spin-off

Exactly two years since unveiling plans for a complex four-way separation of its business, Old Mutual (OML) thinks that the finishing line is finally in sight.

In an overhaul that makes yesterday’s demerger plans by Prudential (PRU) look like a walk in the park, Old Mutual is in the process of separating wealth, asset management, emerging markets and its Nedbank shareholding.

It intends to list two separate entities, with the UK-focused wealth operation to be listed on the London market under the Quilter name. The other will be the new South African holding company, which will chiefly consist of emerging markets, along with the holding in Nedbank and rest of Old Mutual plc.

Their respective balance sheets have now been finalised, with Old Mutual confident that both businesses will be well capitalised to fund growth plans and sustainable future dividend policies. Subject to some remaining issues, it is hopeful it will meet its target to finish the job by the end of 2018.

No timelines were given for the listings of the two businesses, which UBS said will have been a disappointment to some investors today.

However, it added that this was offset by the fact that accompanying annual results were ahead of expectations, driven by a robust performance from the emerging markets business and the impact of £101 million in exceptional performance fees in the UK wealth business in 2017.

The Old Mutual Wealth arm provides advice-led investment solutions and investment platforms to over 900,000 customers, with assets under management totalling £138.5 billion at the end of last year.

Source: interactive investor      Past performance is not a guide to future performance

This is a 20% increase on 2016, with £11 billion of the £23.2 billion improvement due to a positive market performance and the bulk of the rest stemming from inflows. Profits rose 40% to £363 million.

In December, agreement was reached to sell the single strategy AM business to management and funds managed by TA Associates for about £600 million. This may result in Quilter distributing surplus proceeds to shareholders.

As part of the outlook for Quilter, Old Mutual disclosed that the business intends a dividend pay-out range of 40 to 60% of post-tax operating profits.

In the emerging markets business, operating profits grew by 5% to 13.3 billion rand (£807 million) in 2017, despite the challenging macroeconomic conditions in its largest market of South Africa.

South African sovereign and local currency credit ratings were downgraded in April and November, but markets rallied strongly in the second half. In February Cyril Ramaphosa was sworn in as new South Africa President.

Old Mutual said: “We expect that this will lead to a recovery in sentiment and confidence over time despite stretched public finances and governance challenges.”

UBS said the profits figure in emerging markets compared favourably with its own forecast for a flat performance. Analyst Michael Christelis has a ‘buy’ rating on the Old Mutual group with a price target of 280p.

The shares were broadly unchanged today, having risen by two-thirds since the start of 2016 when the separation plan was announced.

As part of the capital management policy put in place for the separation process, Old Mutual today announced a second interim dividend of 3.57p, bringing the full year dividend for 2017 to 7.10p – up from 6.06p in 2016.

Old Mutual believes the separation will go on to create significant long-term returns for shareholders by unlocking value currently trapped within the group.

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